| Hi-Tech Pipes Limited | ||||||
| Rating upgraded to 'CRISIL A2+ '; 'CRISIL A- / Stable' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has assigned its ‘CRISIL A-/Stable‘ rating to the long-term bank facility of Hi-tech Pipes Ltd (HTPL; part of the Hi-Tech Pipes group) and upgraded its rating on the short-term facility to ‘CRISIL A2+’ from ‘CRISIL A2’.
The rating upgrade reflects the significant improvement in the business risk profile of the Hi-Tech Pipes group backed by expansion into new geographies, established brand across India, strong network of over 450 dealers and more than 5,000 retail stores, and diversified product portfolio. Consequently, revenue increased at a healthy compound annual growth rate (CAGR) of 16% over the four fiscals through 2022. Operating income grew to around Rs 1,878 crore in fiscal 2022 from Rs 1,339 crore in the previous fiscal, driven by higher volume and realisations. Revenue is expected to rise 10-12% over the medium term supported by ramp-up of operations at the Khopoli plant which was set up in December 2020 with capacity to manufacture 80,000 tonne per annum of electric resistance welded, mild steel pipes and hollow sections. The growth was also aided by healthy demand from multiple end-user industries such as automotive, construction, power, and oil and gas. Operating margin was stable at 5.0-5.5% for the three years through fiscal 2022, and the earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne rose more than 35% to Rs 3,600 in fiscal 2022 from Rs 2,600 in fiscal 2021. This was largely achieved by addition of more value-added products in the portfolio. Operating profitability is expected at 5.5-6.0% in fiscal 2023, supported by higher sale of value-added products, which is expected to increase over the medium term.
The ratings reflect the established market presence of the Hi-Tech Pipes group, its diverse product profile, and efficient working capital management. These strengths are partially offset by average financial risk profile, susceptibility to volatility in raw material prices and exposure to intense competition. |
Analytical approach CRISIL Ratings has combined the business and financial risk profiles of HTPL and its 100% subsidiaries, HTL Metal Pvt Ltd (HTL Metal), HTL Ispat Pvt Ltd (HTL Ispat) and HITECH Metalex Pvt Ltd (HMPL). This is because all these entities, together referred to as the Hi-Tech Pipes group, have a common name, are in the same business with common management, and have operational and financial linkages.
Refer to Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation |
Key rating drivers and detailed description Strengths: Established market position: Industry presence of over three decades has helped the promoters develop a strong understanding of market dynamics, resulting in healthy capacity and wide distributor network for the group. Revenue grew at a CAGR of 16% in the past four fiscals to Rs 1,878 crore in fiscal 2022 and is expected to rise over Rs 2,000 crore in fiscal 2023 driven by volume growth on the back of enhanced capacity, improved geographical penetration and expected healthy demand.
Diversified product profile: Products include tubes and pipes, cold-rolled strips, and engineering products used in varied industries such as real estate, automotive and agriculture. A wide portfolio acts as a safeguard against downturn in any particular industry. The Hi-Tech Pipes group has continuously focused on improving the share of value-added products—revenue share of these products rose from 18% in fiscal 2021 to 25% in fiscal 2022 resulting in an improvement in the Ebitda per tonne by more than 35% from Rs 2,600 to Rs 3,600. The share of value-added products in total sales is expected to remain above 25% over the next few fiscals.
Efficient working capital management: The working capital management is supported by an efficient collection period and inventory management system resulting in moderate dependence on working capital limits. Gross current assets (GCAs) were at 80-100 days in the five fiscals through 2022 and at 92 days as on March 31, 2022, driven by low receivables of around 30 days and inventory of 54 days. While high growth in turnover may led to incremental working capital requirement, GCAs are expected to remain stable at 90-100 days in the near term.
Weaknesses: Average financial risk profile: The financial risk profile is constrained by high gearing and total outside liabilities to tangible networth (TOLTNW) ratio of 1.30 times and 1.78 times, respectively, as on March 31, 2022. Interest coverage and net cash accrual to adjusted debt ratio were 2.76 times and 0.15 time, respectively, for fiscal 2022 on account of modest operating profitability and substantial working capital debt. However, the gearing and TOLTNW ratio improved from 1.60 times and 2.04 times, respectively, as on March 31, 2020, and with no large, debt-funded capex expected over the medium term, the capital structure should improve over the medium term.
Susceptibility to volatility in raw material prices and exposure to intense competition: Operating profitability is susceptible to volatility in the cost of inputs such as sponge iron, steel scrap, steel and power. The prices are market driven and individual players are price takers. Hence, any sharp fluctuation in steel price can impact the operating margin as the Hi-Tech Pipes group has limited price contracts with suppliers or customers. Furthermore, intense competition because of limited product differentiation and low entry barriers has kept operating margin low. Also, competition from other large players limits the ability to control market prices and constrains profitability. Moreover, the industry is inherently cyclical and strongly correlated to the economy. However, monthly pricing mechanism and order-backed inventory should protect the group from any adverse price movement. Operating profitability is expected at 5.5-6.0% over the medium term. |
Liquidity: Strong Liquidity is supported by healthy cash accrual, estimated at Rs 50 crore for fiscal 2022 and expected at Rs 60-70 crore each in fiscals 2023 and 2024 against debt obligation of Rs 25-27 crore per fiscal. Fund-based bank limit was utilised 77% on average for the 14 months through May 2022. Current ratio was moderate at 1.40 times as on March 31, 2022. The promoters are likely to extend equity and unsecured loan to meet working capital requirement and debt obligation. Also, internal cash accrual, cash and equivalent, and unutilised bank lines should be sufficient to meet debt obligation and incremental working capital requirement over the medium term. |
Outlook: Stable CRISIL Ratings believes the Hi-Tech Pipes group’s business profile will improve on account of healthy growth and diversified product profile. |
Rating sensitivity factors Upward factors
Downward factors
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About the group Incorporated in 1985 and promoted by Mr H L Bansal, HTPL is an ISO-9001 certified manufacturer of steel tubes and pipes and flat steel products. Operations are managed by Mr Ajay Bansal and Mr Anish Bansal. Manufacturing capacities are in Sikandrabad (Uttar Pradesh) and Sanand (Gujarat). The company is listed on the National Stock Exchange and Bombay Stock Exchange.
HTL Metal is a wholly owned subsidiary of HTPL and commenced operations in 2017. Its facility is in Hindupuram (Andhra Pradesh).
HTL Ispat is a wholly owned subsidiary of HTPL, acquired by the latter in fiscal 2019. It has a manufacturing capacity at Khopoli (Maharashtra).
HMPL is a wholly owned subsidiary of HTPL and was incorporated in 2019. |
Key financial indicators
*Provisional |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 05-Jul-2022 in line with the lender-wise facility details as on 14-Feb-2022 received from the rated entity.
Criteria Details
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